Correlation is not causation, of course, but the economy has tended to do the best when taxes on unearned income were high. Economic growth was great during the 1950s, when dividends were taxed at very high levels and capital gains rates were 25 percent, much higher than they are now. Since 2003, tax rates on unearned income have been at their lowest levels ever, and economic growth has been sluggish.
Correlation may not be causation, it's true, but it's also true that high tax rates on unearned income don't necessarily prevent strong economic growth. Republicans would have you believe otherwise.
Norris continues:
Tax rates are not the reason for that, at least not directly. But it could be argued that low tax receipts now are having a pernicious impact, particularly on state and local governments. Their layoffs have been a drag on the recovery, and the declining quality of infrastructure in many areas has hurt many businesses. If the federal government taxed unearned income anywhere close to historical averages, there could have been a lot more tax money available to help out when the credit crisis hit.
Read the rest of the piece here.
The other thing is that high tax rates encourage "sharing the wealth". Why pay yourself $4 million ( you can't possibly spend it all ) if you need to pay 50% or more in taxes? Higher marginal rates lower the marginal utility of the high salary. If the CEO doesn;t take that extra million, he can pay 1000 employees an extra $1000.
ReplyDeleteI think it could be shown that higher marginal rates created the middle class.